India: Foreign Arbitral Award - Territorial Jurisdiction

Last Updated: 26 June 2013
Article by Karan Gandhi

Arbitration is understood as a method of alternate dispute resolution across the world and recognized as the most effective method of solving commercial disputes, especially those of an international dimension. Arbitration in India is governed in accordance with the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'). Part II of the Act deals with the foreign awards and applies to the parties, member to the New York Convention. The enforceability of a foreign award in the countries where the parties to an arbitration agreement do not have any presence has been in discussions and are a subject matter of multiple interpretations. Section 44 of the Act defines "foreign award" as an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India. The Section further provides that the above mentioned provisions should be in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.

Arbitration: An amicable measure for dispute resolution

The parties in the international commerce and businesses prefer arbitration as an amicable measure for resolving disputes alternate to the litigation process which is considered as a lengthy process. The rights evolved pursuant to the arbitral award can be of various natures and may be required to be enforced in other countries as the case may where the right accrued by the Arbitral Award lies.

Recognition of foreign award

Such right in a third country can be enforced after the execution of the Arbitral Award in that particular country. Section 46 of the Act provides the criterion as to when such foreign award would be binding on the parties. According to the said Section, any foreign award which would be enforceable shall be treated as binding for all the purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or any other purpose in any legal proceedings in India. Therefore, an Award may be recognized without being enforced, but if it is enforced, then it is necessarily recognized.

Evidence

Section 47 of the Act provides the requirement as to the evidence, which are required for enforcement of the Arbitral Award. Section 47 of the Act reads as under:

1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court -

a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

b) the original agreement for arbitration or a duly certified thereof; and

c) Such evidence as may he necessary to prove that the award is a foreign award.

2) If the award or agreement to be produced under subsection (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.

Explanation- In this Section and all the following Sections of this Chapter," Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction over the subject- matter of the award if the same had been the subject- matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes.

According to Section 47 of the Act, any person applying for enforcing an Award in India shall produce before such court, the original award or a copy thereof (duly authenticated), Original Agreement for arbitration or a certified copy thereof, such evidence as may be required to prove that the award is a foreign award.

Further, the explanation to Section 47 of the Act, provides that the application is to be filed in the court where the subject matter of the award lies. The subject matter of an award can be of any nature which could be the part of the evidence as provided under Section 47 or any other relief which may arise during the course of Arbitration proceedings. For example, if the subject of an international arbitration is a licensing agreement between the parties, and the award provides certain other reliefs which are related to the intellectual property of either of the parties in some other country in which neither of the party has any actionable assets or claims lying, it may be necessary to enforce the foreign arbitral award in that third country. It can be said that, per se, the right/relief provided by a foreign arbitral award to a judgment debtor cannot be exploited in a third country until such foreign award is enforced in that particular country. Once such foreign award is enforced in such country, it would be the decree of such court and the rights conferred by such decree can be enforced.

The idea of enforcing the award in a country where there is no place of business of any of the parties, has been discussed and examined by various courts in the light of the extent of scope and jurisdiction of such courts .

The extent and scope of jurisdiction

In the case of Tata International Ltd. vs. Trisuns Chemical Industry Ltd.1 Bombay High Court has held that, in an arbitration the Court would consider the subject matter of the arbitration; in the enforcement of the award the Court would consider the subject matter of the award as the determining factors. This stands to reason and logic. The subject matter of the arbitration may be a certain contract, a certain property., etc. The territorial jurisdiction of the Court would be where the contract was entered into or where the some or all the properties of the respondent would be. Once the arbitration is concluded and has to be enforced, it is the subject matter of the award which would have to be seen. That would be whether the award is a money award (analogous to a money decree in litigation) or a declaration or other relief with regard to a contract or a property. The award would have to be filed for its enforcement in a Court which would be able to enforce that award. It would be futile to file it where a cause of action may have arisen, if the respondent would have no properties in that jurisdiction. Similarly, it would be of little use to file it where the respondent resided or carried on business. It would have to be filed where the respondent would have properties, movable or immovable, which could be attached and sold in execution of the award.

The decision of the Bombay High Court was followed in the matter of Wireless Developers Inc Vs. India games Limited2 where the Court held that, if the party has a foreign award in its favor it can seek to enforce the award in any part of the country where it is sought to be enforced as long as money is available or suit for recovery of money can be filed.

Moreover, the fact that the enforcement of an award can be made in the countries where the arbitration is held, the parties to the arbitration have their place of business or any other place as can be construed on perusal of the Judgment of the Hon'ble Supreme Court of India in the case of Brace Transport Corporation of Monrovia, Bermuda Vs. Orient Middle East Lines Limited, Saudi Arabia & Ors3. The Supreme Court was of the view that, the  arbitration between the parties should be in a neutral forum. The parties may not have any assets under the jurisdiction of such neutral forum. The award cannot, therefore, be enforced there. Instead the enforcement of the award must be in a country where the properties of the judgment debtor would be. It is, therefore, held that foreign awards must, therefore, be recognizable and enforceable internationally and the place of such enforcement would not be chosen by the parties, but would depend upon the circumstances of each particular case.

Conclusion

From the above, it can be inferred that the territorial jurisdiction for enforcement of a Foreign Award can be understood by referring to the place where the right as conferred by the Award accrues. The territorial Jurisdiction of the Court for the purpose of a Foreign Arbitral Award applies on the rights conferred by such award and the test is to examine that whether it is required to enforce such foreign arbitral award in order to enforce such right or not. The settled principal in the regime of an international arbitration is the fact that the right vested by an international award in any country except the country in which such award is made can be exploited only when such foreign award is enforced in such country. Further, the territorial jurisdiction can be understood in the light of the subject matter of the award.

Footnotes

1 2002(2) B.C.R. 88

2 2012(3)MhLj449

3 AIR1994SC1715

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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